Corporate hostility or corporate hospitality?

With a long summer of festive activities on the horizon, culminating with the Olympics, Claus Andersen muses over the impact of last year's UK Bribery Act and where the limits lie on corporate hospitality

A drink or a bribe?

Just over a year ago the Bribery Act came into force in the UK causing consternation not only in the UK but around the world. The toughest legislation of its kind, it has thrown up all sorts of issues for businesses. Prohibiting the offering and receiving of bribes, the new law requires businesses to put in place adequate procedures to prevent their employees and other business partners (such as consultants and agents) who perform services on behalf of or for the business from breaching the Act. The penalty for breaching the Act is up to ten years in prison and/or an unlimited fine.

A myth or a hype

Much hype and many myths surrounded the Act. One of the myths was that the Act made corporate hospitality very difficult. I remember one of my friends telling a story about an event that was due to take place just after the Act came into force. A number of staff from a leading high street bank had been invited to a drinks reception. The compliance department of the bank was very concerned about the implications of the bribery law and whether the bank would breach the Act by participating in the event and called the organisers of the event to ask how many canapés there would be served per person, the cost of the canapés and price of the wine served. Indeed, they even wanted to know howmany glasses of wine would be served per person.
Once the compliance department was assured that it was not an extravagant event but actually just another normal reception, it approved the event. This example reveals the level of fear regarding the implications of the Act.

Corporate Hospitality and the Act

However, it is still relevant to ask what the Act actually means for corporate hospitality and if its introduction has led to a decrease in corporate hospitality and/or changed behaviour in relation to corporate hospitality. These questions are particularly relevant considering the upcoming Queens’ Diamond Jubilee celebrations in London, the European Football Championship and Olympics which give many opportunities for corporate hospitality.Whilst most people would not intentionally consider offering or taking a bribe, the legislation is drafted so vaguely that anyone doing business in the UK needs to consider its effects. However, it has never been the intention to ban corporate hospitality. The then Government Minister, Lord Tunnicliffe, said during the debate before the Act had been passed that the government recognised “that corporate hospitality is an accepted part of modern business practice and the Government is not seeking to penalise expenditure on corporate hospitality for legitimate commercial purposes. But lavish corporate hospitality can also be used as a bribe to secure advantages and the offences in the Bill must therefore be capable of penalising those who use it for such purposes”.
All things considered, the decisive factor will be whether the hospitality is for legitimate corporate purposes and whether it is proportionate and reasonable. But what is proportionate and what is reasonable?

Lunches and dinners

As a general rule it is acceptable to invite business partners and contacts out for lunch and dinner. What the Act means is that the expense must be “proportionate and reasonable” compared to the business relationship.So you can still invite a business contact out for lunch. However, in most cases it would be deemed out of proportion if, to impress the contact, you  invited  Beyonce to sing for him or her at the lunch. Now most people would not do this anyway, but the example shows that what the Act is trying to curb is the excessive spending on corporate hospitality putting the beneficiary in the position of feeling, at least morally, obliged to do business with you. In relation to drinks receptions you can still invite people to these, provided the reception is reasonable and proportionate. And as a general rule you can still invite people to celebrate achievements, anniversaries, seminars, the launching of new offices or invite people to event with technical content.

What has changed

Many readers may now ask has the Act really changed anything. Most events clearly fall within the permitted category. It is also my experience that the numbers of events, lunches one is invited to have not decreased.  What has happened is that people have been forced to think more about what is reasonable and proportionate in relation to the lunches and the events they are inviting contacts to.  The Act has also given more work to many businesses’ compliance departments as companies seek to be sure they are within the law on this front.

Claus Andersen is a partner at London law firm Royds

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